A Boom In Oil Is A Boon For U.S. Shipbuilding Industry

Cranes moving heavy steel pieces that will form part of an oil tanker at the Aker Philadelphia Shipyard.

Jonathan BlakleyNPR

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Originally published on March 14, 2014 3:58 pm

Scott Clapham peers down into a cavernous dry dock at the Aker Philadelphia Shipyard. He points to massive pieces of steel, some covered with a light dusting of snow. When assembled, they will form a 115,000-ton oil tanker.

It's one of two oil tankers being constructed for SeaRiver Maritime, a subsidiary of Exxon Mobil, costing $200 million apiece. It takes roughly 1,000 workers more than a year to build, and the shipyard already has orders for four more tankers and two container ships, says Clapham, the senior vice president of Aker Philadelphia. He says orders for large vessels have shot up in the past year.

"We've seen, since 2013, just a steady increase in demand for the ships, both here in Philadelphia and other shipyards across the country," Clapham says.

The energy boom in the U.S. is having a knock-on effect on the country's shipbuilding industry. Matthew Paxton, president of the Shipbuilders Council of America, says there is a relative boom in the construction of larger vessels at major shipyards across the country, especially oil tankers. He says three years ago, the tanker market wasn't even on the screen, but shale formations in North Dakota and Texas have changed that.

"All this oil is coming down to the Gulf Coast, and we're going to need to move that oil around the United States to refiners," he says.

There are more than 15 oil tankers, along with hundreds of smaller tugs and barges, on order at U.S. shipyards across the country, according to the American Maritime Partnership. But it will take months, if not years, to build them.

In the meantime, the domestic energy supply is booming, yet oil companies cannot bring in foreign ships to help move the oil and gas around the country thanks to a 1920s federal law called the Jones Act. Tom Allegretti, the chairman of the American Maritime Partnership, says under the Jones Act, you can only move cargo between two ports in the U.S. under certain conditions.

"You need to do that on a vessel that is flagged under U.S. law, that is crewed by American citizens and that is built in a U.S. shipyard," Allegretti says. He says the Jones Act helps create jobs and keeps U.S. waterways in the hands of Americans.

But others say the Jones Act is pure protectionism for shipbuilders and unions. William Gray, an expert and consultant in shipbuilding, operations and regulations, says a lack of competition means the U.S. shipbuilders became less efficient and not as technologically advanced as builders in other parts of the world.

"The designing of ships and the engines for ships and the equipment for ships; the United States was not very good at figuring out how to do that," Gray says.

Gray says shipbuilding in the U.S. has declined dramatically since World War II, and that there are only a handful of major shipyards now. A good percentage of those vessels being built are ordered by the Navy. Gray says the industry cannot keep up with the demand for merchant ships at an affordable price.

"We have very few of these shipyards that we used to have that made the larger ships: tankers, bulk carriers and container ships," he says. He says the cost is about three times as much as you find in shipyards in China, Japan and South Korea.

Aker Philadelphia Shipyard's Clapham agrees the Jones Act allows U.S. builders to capitalize on the surge in domestic oil and gas. He says without that federal law, ships would more likely be built overseas.

"The Jones Act, with its requirement to be built in the U.S., greatly helps support the manufacturing facility that you see here," he says.

But until more tankers come on line, energy companies may have to rely more on rail, pipeline and road to transport the glut of domestic oil and gas.

Copyright 2014 NPR. To see more, visit http://www.npr.org/.

Transcript

DAVID GREENE, HOST:

NPR's Jackie Northam has been reporting this week on shipping. And today, the impact of the energy boom is having on that industry. A nearly century-old federal law that some blame for strangling the shipbuilding industry at one point is breathing new life into some long-struggling American shipyards. Construction of oil tankers, in particular, is on the rise.

Here's more Jackie's series.

(SOUNDBITE OF MACHINERY)

SCOTT CLAPHAM: We're actually looking down inside the cargo tanks. You can see here the double hull. And you can see the large pipes that run through the tanks that will carry the actual oil...

JACKIE NORTHAM, BYLINE: Scott Clapham peers down into a cavernous dry-dock here at the Aker Philadelphia shipyard. He points to massive pieces of steel, some covered with a light dusting of snow. When assembled, they'll form a 115,000-ton oil tanker.

CLAPHAM: There are normally about, you know, 100,000 individual pieces of pipes and ladders and things like that, and a couple hundred thousand pieces of steel. There are people who say ships have as many pieces in them as the space shuttle.

NORTHAM: This is one of two oil tankers constructed by Aker Philadelphia for SeaRiver Maritime, a subsidiary of Exxon Mobil, costing $200 million apiece. It takes roughly 1,000 workers more than a year to build and the shipyard already has orders for four more tankers and two container ships, says Clapham, the senior vice president of Aker Philadelphia. He says orders for large vessels have shot up in the past year.

CLAPHAM: During the early 2000s, we delivered I guess 18 ships, so the orders would come in periodically. We've seen since 2013, just a steady increase in demand for the ships, both here in Philadelphia and other shipyards across the country.

NORTHAM: Matthew Paxton, president of the Shipbuilders Council of America, says there is a relative boom in the construction of larger vessels at major shipyards across the country, especially oil tankers.

MATTHEW PAXTON: This tanker market two, three years ago wasn't even on the screen. And why it's now there is because of this shale oil boom in Bakken Shale up in North Dakota, the Eagle Ford in Texas. And all this oil is coming down to the Gulf Coast and we're going to need to move that oil around the United States for refiners. And that was a market no one really saw, you know, two or three years ago and now it's here and now we're building for it.

NORTHAM: There are more than 15 oil tankers - along with hundreds of smaller tugs and barges on order at U.S. shipyards across the country, according to the American Maritime Partnership. But it will take months, if not years, to build them, and in the meantime, the domestic energy supply is booming. Yet, oil companies can not bring in foreign ships to help move the oil and gas around the country - thanks to a 1920s federal law, called the Jones Act, says Tom Allegretti, the chairman of the American Maritime Partnership.

TOM ALLEGRETTI: What the Jones Act says is that if you want to move cargo in the United States by water between two ports in the United States, you need to do that on a vessel that is flagged under U.S. law, that is crewed by American citizens and that is built in a U.S. shipyard.

NORTHAM: Allegretti says the Jones Act helps create jobs and keeps U.S. waterways in the hands of Americans. Others says the Jones Act is pure protectionism for shipbuilders and unions. William Gray, an expert and consultant in shipbuilding, operation and regulations says a lack of competition means the U.S. shipbuilders became less efficient and not as technologically advanced as builders in other parts of the world.

WILLIAM GRAY: The designing of ships and the engines for ships and the equipment for ships, the United States was not very good at figuring out how to do that.

NORTHAM: Gray says shipbuilding in the U.S. has declined dramatically since World War II. He says there are only a handful of major shipyards now. A good percentage of ships being built are ordered by the Navy. Gray says the industry cannot keep up with the demand for merchant ships at an affordable price.

GRAY: We have very few of these shipyards that we used to have that made the larger ships - tankers, bulk carriers and container ships. And usually, it's about - the cost is about three times as much as you find in the Asian shipyards - China, Japan and Korea.

(SOUNDBITE OF SHIPYARD)

NORTHAM: Back at the Aker Philadelphia shipyard, vice president Scott Clapham agrees the Jones Act allows U.S. builders to capitalize on the surge in domestic oil and gas.

CLAPHAM: Without the Jones Act, the orders that the U.S. shipbuilders have seen would not materialize. Those ships would have been ordered in Korea or China or another country overseas. The Jones Act, with its requirement to be built in the U.S., greatly helps support the manufacturing facility that you see here today.

NORTHAM: But until more tankers come on line, energy companies may have to rely more on rail, pipelines and road to transport the glut of oil and gas.